Dodd-Frank Act Requires Federal Financial Agencies To Ensure That Government Contractors Have Diverse Workforces

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act,” “Dodd-Frank,” or the “Act”), H.R. 4173. By January 2011, section 342 of the Dodd-Frank Act requires each of the 30 federal financial agencies and departments, including the Securities and Exchange Commission and all 12 Federal Reserve banks, to establish an Office of Minority and Woman Inclusion (an “Office”) “that shall be responsible for all matters of the agency relating to diversity in management, employment, and business activities.”

Each of these Offices must develop and implement rules to ensure that all firms with which the federal financial agency or department contracts for services of any kind (“government contractors”) fairly include women and minorities, both in the contractors’ workforces and in the workforces of the firms with which the contractors subcontract (“government subcontractors”).

Under Dodd-Frank, the 30 federal financial agencies’ Offices’ rules concerning workplace diversity will apply to, among other types of government contractors and subcontractors, “financial institutions, investment banking firms, brokers, dealers, financial services entities, underwriters, accountants, investment consultants, and providers of legal services.”

The Act specifies that it does not require “any specific action based on” the findings of a federal financial department’s Office of Minority and Woman Inclusion as to whether a government contractor or subcontractor has implemented diversity policies and practices.

For example, if a federal financial agency’s Office determines that a government contractor or subcontractor “has failed to make a good faith effort to include minorities or women in” its workforce, the federal agency may, but is not required to, terminate its contract with that entity. The federal agency may, instead of terminating the agreement, refer the matter to the U.S. Department of Labor or “take other appropriate action.”

The effect of section 342 of this financial reform legislation is difficult to predict, because each federal financial agency’s Office of Minority and Woman Inclusion must draw up and put into practice its own rules regarding workplace diversity. Some U.S. agencies’ Offices may construe broadly their vaguely defined, statutory mandate to ensure that government contractors and subcontractors have diverse workplaces. Other federal departments’ Offices may construe their responsibilities more narrowly.

It should be noted that the Dodd-Frank Act sets neither quotas nor ratios for government contractors’ hiring and retention of female and minority employees.

Further, it could take years until the federal agencies’ Offices’ rules take effect. Section 1116 of the federal Housing and Economic Recovery Act of 2008, in language resembling that of section 342 of the Dodd-Frank Act, requires federal housing agencies to establish equal opportunity offices and requires those offices to issue rules ensuring that those agencies fairly include minority- and women-owned businesses among the firms with which the agencies contract. According to the Los Angeles Times, the federal housing agencies’ diversity offices have not yet issued final rules.

If your company needs assistance or guidance on a labor or employment law issue and your company is located in the Manhattan, NYC area, call Attorney David S. Rich at (347) 603-1143.